1. Field of the Invention
The present invention relates to an interne web based online System and Method used in closing real estate transactions.
2. Description of the Related Art
All charges paid by a buyer, seller, or borrower in connection with a real property transaction must be computed and displayed on the Department of Housing and Urban Development's HUD-1 form or HUD 1A form (hereinafter “HUD-1” or “HUD1/1A”) settlement statement. See, e.g., FIG. 12. Every transfer or financing transaction from which a HUD-1 arises, involves the following steps:
(i) Transfer/disbursement of funds pursuant to HUD-1;
(ii) Recordation of executed transfer and/or financing documents resulting from transaction; and
(iii) Disbursement of executed documents after transaction completion.
The HUD-1's primary purpose is to provide a consistent format in which the charges to both buyers and sellers are calculated and disclosed. The HUD-1 has been developed through government regulation as a mandatory form document to be used on consumer real property transactions involving charges to borrowers, buyer or sellers. The only current exception to mandatory use of the HUD-1 for a consumer real property transaction is in connection with a Home Equity Line of Credit (HELOC) financing transaction. However, most Settlement Agents utilize the HUD-1/1A in most transactions since it is most compatible with their internal protocols and familiar to a wide variety of third parties. The regulations relating to the HUD-1 are intended to denominate specific line items for the common fees and charges. These HUD-1 regulations have been frequently misinterpreted, misread or otherwise not followed by preparers. The consequence of failing to follow the regulatory requirements of preparing a HUD-1 can be severe. The consequences may even create or concentrate unintentional liability on the preparer, while relieving liability of the other parties to the transaction.
Additionally, the closing of a financing transaction which violates state or federal high cost (or “predatory lending”) regulations may create unintentional liabilities, and may even impact the salability of the consumer real property loan in the secondary market. The salability of any given consumer real property loan in the secondary market is significant in that it impacts the value of the loan as an asset of the Mortgage Originator.
Further complicating this situation is the requirement that multiple parties coordinate at multiple intervals in order to consummate a real property transaction. For example, a Mortgage Originator, Settlement Agent (the preparer of the HUD-1/1A), and funding or lending source may participate in the process. This may create a difficult communication environment as well as complicate the audit requirements relating to any financing involved in the transaction. In the absence of a comprehensive system and method for coordination and consummation, each interval of the process presents an opportunity for error and/or fraud. Any such comprehensive system and method must be capable of satisfying not only the Settlement Agent requirements, but the consumer (buyer and seller), lender, and vendor requirements, as well as the legal requirements.
Current regulations require that all settlements or financial transactions involving consumer real property include the utilization of a HUD-1 promulgated form. Most Settlement Agents currently use some form of computer generated HUD-1 prepared by a system proprietary to their title company, or one that is sold by a system vendor serving the title industry. A typical HUD-1 preparation system uses a template format allowing the Settlement Agent to enter numbers in what they interpret to be the appropriate locations. Some systems permit the Settlement Agent a limited import of data from their existing system(s) into the HUD-1 form, such as property legal descriptions and buyer/seller name. Some systems also permit the Settlement Agent to send data from the HUD-1 entry fields to a check-writing program to facilitate the issuance of closing proceeds and disbursement via paper checks.
The prior art systems do not permit, however, the lending source to have any direct input control of the numbers used in the HUD-1, nor do they require approval of the lending source prior to execution of the HUD-1 by either buyer (borrower) or seller. Essentially, the use of the HUD-1 forms as mandated by existing regulation is dependant upon the interpretation of the Settlement Agents without regard to: (i) audit of its content for legal compliance before execution; or (ii) a lending source being asked to provide funding of the transaction only after the process is closed. This lack of checks and balances can result in multiple iterations of the HUD-1 being executed in connection with a transaction, which in turn gives rise to confusion as to which HUD-1 is the final version. Further, since prior art systems do not have sophisticated front-end controls for the Mortgage Originators or Warehouse Funding Source (warehouse bank), holding Settlement Agents accountable for failure to follow closing instructions is difficult since, in most cases, the loan has already been funded.
Accordingly, a need exists for an interne web-based mechanism by which coordination of the various parties, information, documents and funds involved in a real property transaction can be managed, audited, tracked, and disbursed, and reports can be generated for the various participants to use as permanent records, and to provide loan-level accounting for mandated executive certifications.